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Condo insurance can be complicated due to the differences in homeowners association rules. Your HOA has a master policy that protects common areas and structures as well as some parts of your condo.

Where that policy leaves off is where the condo owners, or HO-6, insurance policy, needs to pick up. That includes coverage for whatever part of the building itself isn’t covered by the master policy, your personal property and your personal liability. The type of policy you need will affect the cost of condo insurance.

Condo insurance policies don’t need to be complicated. Read on to learn the basics of condo coverage and how the different policies work.

KEY TAKEAWAYS
  • Homeowners associations typically require condo owners to have condo insurance to cover what the HOA policy doesn’t.
  • The homeowners association master policy covers general liability for the association and property damage coverage for the common areas, as well as some parts of the condo units.
  • HO-6 insurance covers building property not covered by the master policy, personal liability, personal property (contents), special assessments, loss of use, and medical payments.

What does HO-6 condo insurance cover?

The HO-6 policy offers a range of coverage:

All of these coverages are much the same across HO-6 policies, with the exception of building property coverage. How much building property coverage you need and what is covered depends on the HOA policy.

We’ll take a detailed look at each of the parts of a condo policy and what they cover below.

Building property coverage

This coverage is required if you are responsible for any part of the building itself, or anything that is attached to the building. What you need to cover will depend on what’s not covered by your HOA master policy.

It’s vital to read your master policy carefully so you’re sure of what you need to cover. You may not need any building property coverage if your master policy covers all parts of your unit that aren’t your personal property. On the other hand, you may need coverage for everything from the walls in.

Building property coverage protects things like:

  • Light fixtures
  • Countertops
  • Bathroom fixtures
  • Built-in appliances
  • Doors
  • Cabinets

Personal property (contents) coverage

Personal property coverage applies to everything in your unit that is not a fixture. This means electronics, toys, furniture, décor, clothing, books, kitchen equipment and anything else you own. Like homeowners insurance, HO-6 personal property coverage applies to your goods while they are at home, and also outside your home.

However, off-premises coverage for damaged or stolen items is limited to a percentage of your total personal property coverage – often 10 to 20% of your total coverage.

Unlike homeowners insurance policies, standard HO-6 coverage for personal property is not a percentage of the dwelling coverage (since there is no dwelling coverage). It's usually a flat amount that you will need to calculate. Make sure you have included all of your possessions, from kitchen gadgets to bathroom towels, in your calculation.

There are two types of personal property coverage: replacement cost and actual cash value. Replacement cost pays the actual cost to replace each item at today’s prices. Actual cash value, on the other hand, will only pay the depreciated value of the item. Adding replacement cost coverage is always a good idea, as items depreciate quickly.

Note that there are special limits on high-value items like jewelry, art, or musical instruments. You can add additional coverage for these items, or you can add what’s known as a floater or a rider. These scheduled property floaters insure specific items for their appraised value.

Personal liability coverage

Your HOA's liability insurance only applies if a visitor or resident is injured in the project's common areas – like elevators, pathways, swimming pools, and clubhouses. Personal liability insurance provided by an HO-6 policy protects you and covered members of your household when you're responsible for bodily injury or property damage to others.

In addition to paying settlements to injured parties, HO-6 insurance covers the cost of defending you from lawsuits. It works both in your home and off the condo premises.

Condo liability coverage limits typically run between $100,000 and $500,000. How much do you need? Experts offer a few ways to calculate it.

One is taking the value of your assets plus five times your annual income – you're protecting everything you own plus your future income. For more protection, you can purchase a personal umbrella (excess liability) policy.

The Insurance Information Institute says that you must usually purchase at least $300,000 in liability coverage before insurers will sell you an umbrella policy. That level of liability coverage costs about $20 a year.

Depending on your insurer, buying an umbrella policy may get you a discount on your other insurance policy, offsetting part of its cost.

Loss assessment coverage

Loss assessment coverage kicks in when an assessment is caused by a covered peril -- for example, a huge storm destroys the roof of the entire building, exceeding the HOA's insurance limits and sticking your community with a giant repair bill. Every condo owner is responsible for a share of the cost, and loss assessment coverage will kick in to help pay your part.

Experts recommend at least $50,000 of coverage, while the standard HO-6 comes with much less – often just $1,000. Note that this coverage only applies to covered perils. If the assessment is the result of an earthquake, and there is no earthquake insurance in force, you won't be protected.

Master policy deductible coverage

HOAs are increasingly choosing higher deductibles for their master policies, reducing their premiums while upping the risk to individual owners. In fact, industry insiders have noted that deductibles over $10,000 are not rare, and for some complexes have climbed as high as $50,000.

Master policy deductible coverage reimburses unit owners for these deductibles. You should make sure this coverage equals your master policy deductible to avoid unexpected losses. Make sure you understand how you’ll be reimbursed using this coverage by reading the policy carefully.

Loss of use coverage

Loss of use coverage kicks in when your unit becomes uninhabitable due to a covered event. During repairs, this coverage will pay for things like a hotel room, food and other costs incurred while you can’t be in your home.

Medical payments

Medical payments coverage pays for medical costs if someone is hurt at your home. If a friend slips on your rug and breaks an ankle, for example, your medical payments insurance can cover the ER bill. This is usually between $1,000 and $5,000 and is designed to cover smaller medical bills.

What perils are covered by condo insurance?

Most condo policies cover damage from all perils with the exception of those that are specifically excluded. Common covered perils include:

  • Fire
  • Theft
  • Vandalism
  • Storms and lightning
  • Falling objects
  • Water damage from sudden and accidental discharge

Perils that are excluded under a standard condo insurance policy include damage from floods, earthquakes, sewer backups, and (in some locales) hurricanes. Coverage for these can be purchased either as an endorsement or, in the case of flood and earthquake, as a separate policy.

Earthquake

If you want to buy earthquake insurance for your unit, and your HOA has not bought earthquake coverage for the buildings, many insurers won't issue you an individual policy.

In states like California, however, if a company sells condo insurance to unit owners, it must offer earthquake coverage. The downside is that if you have earthquake insurance, but your HOA does not, your interior is covered but the building is not.

Flood

If your condo is in a Special Flood Hazard Area (SFHA), and you have a mortgage, you'll be required to have flood insurance on your unit. Even if you're not required to have flood insurance, however, you might want the extra protection. The National Flood Insurance Program says that homeowners outside high-risk areas file over 20% of NFIP claims and receive one-third of disaster assistance for flooding.

Wind and hurricane

Coverage for wind and hurricane damage is included in most HO-6 policies, but it can differ depending on the area in which you live. You may be able to exclude this coverage for a lower insurance rate, but it’s risky.

In Alabama, Connecticut, Delaware, Florida, Georgia, Hawaii, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Texas, Virginia, and Washington D.C., insurers have begun reducing their exposure to catastrophic losses from storms and hurricanes by selling homeowners insurance policies with special deductibles for storm damage.

How do they work? They carry percentage deductibles instead of flat dollar amounts – based on the home's insured value. If your condo is insured for $200,000, and your policy has a 5% deductible for hurricane or storm damage, you're responsible for the first $10,000 of damage. For an additional premium, you may be able to choose a traditional flat deductible.

Sewer backups

One peril not covered by standard policies is damage from sewer system backups. You can add sewer backup coverage to your policy as an endorsement, even if your HOA does not have this coverage. It will protect your personal property and building property as well.

What does a condo homeowners association master policy cover?

The condominium master policy doesn’t have a lot of requirements, and coverage can vary. HOA coverage must address just two basic items:

  • General liability for the association
  • Property damage coverage for the common areas

In addition to the basics, HOAs can add personal liability insurance for board members, coverage for damage related to sewer and drain backups and insurance against theft of HOA funds. None of this protects you as an individual property owner, however. If people slip and fall in the community parking lot, the HOA's liability coverage applies. But if they slip in your guest bathroom, the HOA is not responsible.

There are three levels of coverage an HOA can choose:

  • "Bare walls" coverage is limited to the basic structure of the building, including fixtures and furnishings collectively used. That means items for your exclusive use, like counters, cabinetry, flooring, sinks, etc., are not covered. Neither are upgrades and improvements added by you or a previous owner. Your personal property (anything you own that's not nailed down) is also not covered.
  • "Single entity" policies usually cover the building structures, common areas, and fixtures in individual units, but not personal property or improvements made by you or a previous owner. Your personal stuff and any upgrades you have made to the interior are not covered.
  • "All-in" or "all-inclusive" policies cover the structure plus fixtures in individual units and additional upgrades made by you or a previous owner. This policy includes full restoration of your unit to its condition immediately prior to a covered catastrophic loss. The only items not covered by an all-in master policy are your personal belongings.

Master policies don't usually provide liability coverage or insure the personal property of individual owners. In addition, master policies usually have a deductible, which is passed onto HOA members in the event of a loss.

To plug the gaps in your HOA's master policy, you'll have to purchase HO-6 home and contents insurance.

How to buy condo insurance

Purchasing condo insurance is a little different from buying standard homeowners insurance. When you buy a homeowners insurance policy, you insure the value of the dwelling – either its cash value or replacement cost – and your personal property (contents) coverage is calculated at some percentage of the home's insured value. You can then add special "floaters," endorsements– or riders to increase protection – and include coverage for excluded perils like flooding and earthquakes if you choose.

One challenge of condominium insurance is that owners may have to comb through the association documents and the master policy to see where the holes are. Master policies are not "one size fits all," and neither is HO-6 insurance. Here are the steps you'd take to determine your coverage.

  • Check your master policy to see if it's all-in, bare walls, or single entity.
  • Determine your liability coverage needed.
  • Calculate the value of your personal property and see if you need floaters.
  • Determine your building property coverage amount if the master policy is not all-in.
  • Choose replacement value or actual cash value reimbursement.
  • Decide if you want flood, earthquake, or sewer backup coverage.
  • Check your condo documents and add extra master policy deductible and special assessment coverage if needed.
  • Make a list of coverage you need and shop among competing providers. Make sure you ask about discounts.

The average code insurance cost is $625 a year. That’s for $60,000 in personal property coverage, $300,000 in liability, and a $1,000 deductible. If you need more or less coverage, your rates will vary.

How much condo insurance do I need?

If your master policy, like most, is "bare walls," you'll need to cover rebuilding costs for the interior of the condo. If you have a recent home appraisal, the standard Form 1004 has an estimated value using the "cost approach," which can give you an idea of what it would cost to rebuild your unit "good as new." An agent familiar with local building costs can give you a per-square-foot figure, or you could have a contractor provide an estimate (rebuilding appraisals cost about $300).

Next, you'll choose the amount of personal liability coverage. Use whatever rule you like – net worth, total assets, total assets plus five times income – and add an umbrella policy if needed.

Add coverage equal to your master policy deductible if the standard HO6 doesn't cover it. Add loss assessment coverage – experts recommend $50,000 worth.

Take an inventory of your personal property. An easy approach is to use the square footage method -- assume $40,000 of belongings for the first 1,000 square feet, and add $10 for every additional square foot. Add coverage for excluded or limited property if needed. Remember this coverage is cheap, so don't skimp.

Add earthquake, flood, and sewer coverage if you don't want to assume the risk yourself.

Condo insurance requirements and your mortgage

Until recently, mortgage lenders did not require condo owners to carry insurance as long as there was an HOA master policy in place. However, that changed after the Great Recession and housing crisis.

Requiring mortgage borrowers to insure their condo units reduces the risk of financial ruin for them and mortgage default for their lenders.

Fannie Mae, which buys the majority of non-government mortgages in the U.S., requires HO-6 insurance "covering personal property, personal liability, and the physical unit from the studs in, unless the lender can document that the association's master policy provides the same interior unit coverage." The minimum coverage allowed is 20% of the unit's appraised value, with a maximum 5% deductible. If you buy a $200,000 condo, then, you need at least $40,000 of insurance with a maximum $2,000 deductible.

HO-6 coverage is also required for FHA and VA home loans when the master policy does not include interior unit coverage.

Is HO-6 insurance worth it?

Regardless of the amount of coverage you choose to purchase, the protection condo insurance provides makes condominium insurance a smart buy and a good investment. And, in some cases, it may be a requirement. Owning a condo is like owning a home in that it is one of the largest investments you'll make in your lifetime. It is a wise decision to protect that investment.

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